New Ibec report: Debunking Irish income tax myths

Irish income tax regime amongst most punitive in Europe

Workers hit early and hard by brutal 52% marginal rate

Majority of taxpayers would benefit from marginal tax rate cut

In response to some serious misinformation that has entered the Irish budget debate, Ibec today published 'Debunking Irish income tax myths'. The new report finds that Ireland has one of the punitive income tax regimes in the EU, and says over half of taxpayers would benefit from a cut to the 52% marginal tax rate. The report is based on comprehensive new analysis of Revenue and international tax statistics.

Ibec Head of Policy and Chief Economist Fergal O'Brien said: "The Irish income tax regime is amongst the most punitive in Europe. The marginal tax rate, which is now an eye watering 52%, is a barrier to investment and job creation. It is also a serious disincentive to working, taking a promotion or doing overtime.

"The suggestion that only a small number would benefit from a cut to the marginal rate is often repeated, but is wrong. Around half of taxpayers pay at the marginal rate. Positive economic trends mean we now have a chance to ease the pressure. We need to take it. Austerity was necessary, but it has had its day. Those advocating another brutal budget are out of touch with the current economic reality."

Key findings of the report (full details in pdf):

1. Ireland is not a low income tax country, particularly for middle and high earners: Since 2010, income tax as a percentage of national income has risen from 8.7% to 11.6%, well above the EU average of 9.5%. Ireland is now the fifth highest personal income tax jurisdiction in the EU.
2. Over half of all taxpayers would benefit from a cut in the marginal rate: Suggestions that only 17% of income taxpayers pay tax at the marginal rate and that the average tax rate is only 14.1% are factually incorrect. The analysis shows that the majority of taxpayers are paying tax at the marginal rate.
3. The Irish tax system is highly progressive and redistributive in a European context: The income tax system is the most progressive in the developed world and Ireland’s tax and transfers system is the most redistributive in Europe.
4. Middle and high earners pay the vast majority of tax: Low earners pay less tax than the OECD average, but at the average wage and above Irish tax rates are relatively high. Those earning €39,000 upwards are taxed higher than their OECD counterparts.
5. Certain features to the Irish tax system are a major disincentive to work, especially the marginal rate at average earnings: A skilled graduate moving from gross pay of €20,000 to gross pay of €60,000 over the first ten years of their career will see an increase of annual net pay of just €22,888 in Ireland; the same person would see an equivalent increase of €30,287 in the UK; a difference of €7,399.

The report sets out Ibec's detailed income tax recommendations for Budget 2015 and outlines how income tax reform can support the consumer recovery, help attract mobile talent and investment, and make it easier for businesses to take on new staff (see page 3). In Budget 2015 the Government should:

Increase the entry point to the marginal tax rate from €32,800 to €34,800

Reduce the marginal tax rate from 52% to 51%

Reform the universal social charge so self-employed and PAYE workers are treated the same